Drowning in debt, Dubai has received a financial lifeline to refinance $20 billion of its government debt owed the United Arab Emirates and its capital, Abi Dhabi. The emergency loan that comes due this year was issued during the 2009 financial crisis, when Dubai’s real estate market collapsed.
Dubai, one of seven emirates in the UAE, received another five years to repay the loan at a 1% annual interest rate. Dubai owes a total of $142 billion in debt, equivalent to 102% of its gross domestic product, according to the International Monetary Fund. Some $35 billion of the total belongs to the government or is guaranteed by the government. About $60 billion comes due between 2013 and 2017, according to the IMF.
The UAE’s debt-to-gross domestic product ratio has declined from a peak of 23.4% in 2010 to 14.6% currently, according to Trading Economics. Investors prefer to see a country’s debt-to-GDP ratio as low as possible because the lower it is, the more likely it will be able to repay its loans. It reduces the country’s borrowing costs and government bond yields.
More: Dubai Drowning in Debt